PROFIT AND LOSS

Summary:

1. (i) Cost price is the price at which an item is purchased

(ii) Selling price is the price at which an item is sold

2. Selling above the cost price is a gain. Thus profit = selling price  cost price

3. Selling below the cost price is a loss. Thus loss = cost price  selling price
Profit
 100
4. (i) Percentage profit = Cost price
Loss  100
(ii) Percentage loss = Cost price

4. (i) A profit of 20% means the selling price is 120% of the cost price

(ii) A loss of 20% means the selling price is 80% of the cost price

EXAMPLES:

1. A trader bought a radio at Shs 16,000 and sold it at Shs 20,000. Find his:
(i) profits

(ii) percentage profit

Soln:

(i) profits = SP CP

Profit
 100
(ii) percentage profit = Cost price

2. A book is bought at Shs 1,500 and sold at a profit of 40%. Find the selling price
Soln:
140  CP
SP = 100
1
3. A trader sold an item at Shs 54,000 and made a profit of 20%. Find the cost
price

Soln:
120  CP
SP = 100

4. A trader sold an item at a profit of 5%. If his profit is Shs 1500, find his:

(i) cost price

(ii) selling price

Soln:
Profit
 100
(i) percentage profit = Cost price
1500  100
5 = CP

CP = 30,000

(ii) SP = 30,000 + 1,500 = 31,500

105  CP
OR SP = 100

5. The selling price of 12 eggs is equal to the cost price of 15 eggs. Find the
percentage profit.

Soln:

If 12SP = 15CP

 SP = 125CP

2
 (1  25CP  CP)
 100  25
Percentage profit = CP

5. By selling a book at Shs 4,800, a trader would gain 20%. Find how much he
must sell it in order to gain 30%.

Soln:

Soln:
120  CP
= 100
SP

120  CP
4,800 = 100

CP = 4,000
130  CP
= 100
SP

130  4,000
= 100
SP

SP = 5,200

6. A trader bought a car at Shs 6 million and sold it at Shs 48 million. Find his:
(i) loss

(ii) percentage loss

Soln:

(i) loss = CP SP

3
 Loss  100
(ii) percentage loss = Cost price

7. A plot of land is bought at Shs 20 million and sold at a loss of 20%. Find the
selling price

Soln:
80  CP
SP = 100

12 1 %.
8. A trader sold an item at Shs 7,000 and made a loss of 2 Find the cost
price

Soln:
87  5  CP
SP = 100

9. A trader sold an item at Shs 36 million and made a loss of 25%. Find the profit
he would make if he had sold it at Shs 6 million

Soln:
75  CP
SP = 100

75  CP
36 = 100

CP = 48

Profit = 6  48 = 12m

10. By selling items P and Q each at Shs 3,300, a profit of 10% and a loss 34%
were respectively made on the items. Find the percentage loss on both items

4
Soln:

Item P:
110  CP
= 100
SP

110  CP
3,300 = 100

CP = 3,000

Item Q:
66  CP
= 100
SP

66  CP
3,300 = 100

CP = 5,000

Total CP = 3000 + 5000 = 8,000

Total SP = 3,300 + 3,300 = 6,600

Total loss  100
Total percentage loss = Total cost price

(8,000  6,600)
 100  17  5
Total percentage loss = 8,000

EER:

1. A radio is bought at Shs 15,000 and sold at Shs 16,200. Find the percentage
profit

2. A trader sold an item at Shs 48 million and made a profit of 15%. Find the cost
price of the item

5
3. A trader buys an old radio at Shs 65,000 and spends Shs 15,000 on its repair. If
he sells it at Shs 100,000, find his percentage profit.

4. A carpenter incurs a loss of 20% by selling a chair at Shs 240,000. Find the
percentage he would gain by selling it at Shs 360,000.

5. By selling an item at Shs 2400, a trader would gain 4%. Find how much he must
sell it in order to gain 12%.

6. The selling price of 5 eggs is equal to the cost price of 7 eggs. Find the
percentage profit.

7. The cost price of 17 books is equal to the selling price of 20 books. Find the
percentage loss.

8. The selling price of n eggs is equal to the cost price of 27 eggs. If there is a
profit of 35%, find the value of n.

9. The selling price of n pens is equal to the cost price of 12 pens. If there is a loss
of 20%, find the value of n.

10. A trader incurs a loss of 15% by selling an item at Shs 18,700. Find how much
he must sell it in order to make a profit of 15%.

11. A trader sold two items at Shs 18,000 each. On one he gained 20% and the
other he lost 20%. Find the percentage loss on both items

12. A trader bought two plates at Shs 2,500 each. If he sells one at a profit of 5%,
then find how much he should sell the other so that he make a profit of 20% on
both plates.

13. A trader bought 120 books at a rate of Shs 2,000 per book. He sold 72 of them
at a rate of Shs 2,500 per book and the remaining at a rate of Shs 2,000 per book.
Find his percentage profit

14. An item is usually sold at a profit of 80%. If its cost price later went up by 20%
and its selling price remained the same, find by how much is the percentage profit
reduced

6
15. A car dealer buys a car at Shs 1,250,000 and hire it for 25 weeks at a charge
of Shs 3,500 per day. Insurance costs Shs 33,700 during the entire period, at the
end of which he sells it at Shs 750,000. Calculate the profit that he makes on the
transaction

16. A trader bought an item at Shs 5,500 and sold it at 30% more than the buying
price. Find the trader’s:
(i) selling price
(ii) profit

DISCOUNTS

Summary:

1. (i) Discount is a reduction in the selling price of an item

(ii) Sale price = original price  discount

Discount  100
4. (i) Percentage discount = Original price

(ii) A discount of 20% means the sale price is 80% of the original price

EXAMPLES:

1. An item costing Shs 16,000 was sold at Shs 12,000. Find the:
(i) cash value of the discount

(ii) percentage discount

Soln:

(i) Discount cash value = 16,000 12,000 = 4,000

discount  100  4,000  100  25

(ii) percentage discount = Original price 16,000

2. An item costing Shs 60,000 was sold at a discount of 20% . Find:

(i) how much was paid for it

(ii) cash value of the discount

7
Soln:
80  60,000  48,000
(i) Actual cost price = 100

20  60,000  12,000
(ii) Discount cash value = 100

3. The cost of an item is Shs 4,500 after a discount of 10%. Find its original cost
price

Soln:
90  CP  4,500
100

 CP = 5,000
4. An item costing Shs 50,000 was sold at two successive discounts of 20% and
5%. Find:

(i) how much was paid for it

(ii) the total percentage actual discount

Soln:
80  50,000  40,000
(i) 1st cost price = 100
95  40,000  38,000
 Final cost price = 100

(50,000  38,000)
 100  24
(ii) Actual percentage discount = 50,000

5. Find a single percentage discount equivalent to successive discounts of 20%,

10% and 5%.

Soln:

8
 80  MP  0  8MP
st
1 selling price = 100

90  0  8MP  0 72MP
2nd selling price = 100
95  0 72MP  0  684MP
 Final selling price = 100
(MP  0  684MP)
 100  31 6
Actual percentage discount = MP

6. The marked price of an item is Shs 240,000. A trader sold it to his customer

at a discount of 10% and still made a profit of 20%. Find the:

(i) price at which the trader had bought the item

(ii) percentage profit the trader would have made if no discount was allowed

Soln:

(i) If discount is 10%

90  240,000  216,000
 SP = 100

If profit is 20%
120  CP  216,000
 100

 CP = 180,000
(240,000  18,000)
 100  33 33
(ii) Percentage profit = 180,000

7. A trader buys a bag at Shs 60,000 and marks it for sale at a price that gives a
profit of 20% when he allows a discount of 10% on its purchase. Find the marked
price of the bag

9
Soln:

If profit is 20%
120  60,000  72,000
 SP = 100
If discount is 10%
90  MP  72,000
 100

 MP = 80,000
EER:

1. The cost of an item is Shs 4,800 after a discount of 20%. Find its original cost
price

2. A bicycle priced Shs 200,000 was sold at a discount of 15%. Find:

(i) how much was paid for it

(ii) cash value of the discount

3. Find the percentage discount allowed when an item costing Shs 60,000 is sold
at Shs 48,000

4. Find a single percentage discount equivalent to successive discounts of 20%

and 15%.

5. An item costing Shs 80,000 was sold at successive discounts of 10% and 5%.
Find its final cost price after the discounts

6. The marked price of a radio is Sh. 950,000. A trader allows a discount of

10% but still makes a profit of 12%. Find the:

(i) price at which the trader had bought the radio

(ii) percentage profit the trader would have made if no discount was allowed

10
7. A trader buys a bag at Shs 40,000 and marks it for sale at a price that gives a
profit of 20% when he allows a discount of 4% on its purchase. Find the marked
price of the bag

8. A man bought a shirt at 20% discount. If he paid Shs 20,000, find the original
price of the shirt

9. The price of an article is Shs 240,000. If a discount of 12% is given, find the
selling price of the article

HIRE PURCHASE

Summary:

1. Hire purchase is the instalment payment for an item over time

2. The hire purchase price includes interest charges. Thus it is higher than the
cash price of an item

EXAMPLES:

1. A radio whose cash price is Shs 180,000 can also be bought on hire purchase
by paying a deposit of 35% of the cash value followed by 6 equal monthly
instalments of Shs 24,500. Find the:

(i) hire purchase price of the radio

(ii) extra amount paid over the cash price using hire purchase

Soln:

 35  180,000   (6  24,500)  210,000


(i) Hire purchase price =  100 

(ii) Extra payment = 210,000  180,000 = 30,000

11
2. The marked price of an item is Shs 640,000. A 5% discount is offered on cash
purchase. It can also be bought on hire purchase by paying a deposit of 40%
followed by 18 equal monthly instalments of Shs 23,000. Find how much is saved
by paying cash than using hire purchase

Soln:
95  640,000  608,000
Cash price = 100

 40  640,000   (18  23,000)  670,000

 
Hire purchase price =  100 

 Savings = 670,000  608,000 = 62,000

3. A motor company had the following advertisement:

GET YOURSELF A CAR CHEAPLY

CASH VALUE: Shs 245 MILLION
CASH DISCOUNT: 8% OF THE CASH VALUE
HIRE PURCHASE: DEPOSIT 60% OF THE CASH VALUE
AND PAY 4 MILLION MONTHLY FOR
3 MONTHS
Calculate:

(i) how much is saved by paying cash than using hire purchase

(ii) the percentage profit the trader made on hire purchase price if he

had bought it at 20% below the cash price

Soln:
92  24  5  22  54 million
(i) Cash price = 100

 60  24  5   (4  3)  26 7 million
 
Hire purchase price =  100 

 Savings = 267 2254 = 416 million

80  24  5  19  6 million
(ii) Cost price = 100
12
 (26 7  19  6)
 100  36  2
 Percentage profit = 19  6

4. The cash price of a radio is Shs 200,000. It can also be bought on hire purchase
by paying a deposit of 45% followed by 5 equal monthly instalments. If the total
hire purchase price is Shs 240,000, find the amount of each monthly instalment

Soln:

Hire purchase price = deposit + total instalments

 45  200,000   (5  P )  240,000

 100 

 P = 30,000
EER:

1. An item whose cash price is Shs 60,000 can also be bought on hire purchase by
paying a deposit of Shs 20,000 followed by 4 equal weekly instalments of
Shs 13,000. Find how much is saved by paying cash than using hire purchase

2. The marked price of a car is Shs 64 million. A 75% discount is offered on cash
purchase. It can also be bought on hire purchase by paying 4 equal monthly
instalments of Shs 165 million. Find how much is saved by paying cash than
using hire purchase

3. A radio whose cash price is Shs 300,000 can also be bought on hire purchase
by paying an extra charge of Shs 60,000. If 9 equal monthly instalments are to be
made, find the amount of each monthly instalment

4. A printer whose cash price Sh. 800,000 can also be bought on hire purchase by
paying a deposit of Sh.260,000 and 18 equal monthly installments . If the hire
purchase price is 45% more than the cash price, find the amount of each monthly
instalment

5. The marked price of a car is Shs 45 million. A company bought it at a discount
of 20% for its employee, who was then to pay a deposit of Shs 18 million and 12
equal monthly instalments of Shs 027 million. Find the percentage profit the
company got from the employee on the car
13
6. A motor company had the following advertisement:

GET YOURSELF A CAR CHEAPLY

CASH VALUE: Shs 485 MILLION
CASH DISCOUNT: 8% OF THE CASH VALUE
HIRE PURCHASE: DEPOSIT 60% OF THE CASH VALUE
AND PAY 7 MILLION MONTHLY FOR
3 MONTHS
(a) Calculate how much Tom would save by paying cash than using hire

purchase

(b) Tom bought the car by hire purchase and then sold it at 35 million. Find the

percentage loss he made

7. A Smartphone company had the following advertisement:

BUY A PHONE NOW WHILE STOCK LASTS

CASH VALUE: Shs 320, 000 LESS 15% DICOUNT
HIRE PURCHASE: DEPOSIT 15% OF THE CASH VALUE
AND PAY EITHER Shs 82, 000 MONTHLY
FOR 4MONTHS OR Shs 25, 000 WEEKLY
FOR 12WEEKS
(a) Calculate the:

(i) saving made by paying cash than using monthly hire purchase.

(ii) saving made by using weekly hire purchase than monthly hire purchase

(b)If the trader had bought the phone at 20% below cash value and sold it on
monthly hire purchase, find the percentage profit he made

COMMISSION

Summary:

1. Commission is a reward to the sales agent based on the level of sales

14
2. Commission is usually a percentage of the value of goods sold

EXAMPLES:

1. A sales agent gets a commission of 15% for selling goods. Find his commission
for sales worth Shs 600,000

Soln:
15  600,000  90,000
Commission = 100

2. A salesman gets a commission of 15% on the first Shs 120,000 of his total sales
and 20% on the rest. Find his commission for sales worth Shs 370,000

Soln:

 15  120,000   20  (370,000  120,000)  68,000


Commission =  100  100

3. A salesman earns a basic salary of Shs 100,000 per month and a commission of
8% for sales above Shs 150,000. In a certain month, he allowed a discount of 5%
on the sold goods worth Shs 400,000. Calculate his income for that month

Soln:
85  400,000  340,000
Total sales = 100

100,000  8  (340,000  150,000)  115,200

Earned Income = 100

4. A salesman earned Shs 180,000 as commission for selling 10 shirts at Shs

25,000 each, 15 skirts at Shs 10,000 each and 7 trousers at Shs 50,000 each. Find
his percentage rate of commission
Soln:

Total sales = (10  25,000) + (15  10,000) + (7  50,000) = 750,000

180,000  100  24
Percentage commission = 750,000

15
5. A salesman gets a commission of 8% for selling goods. Find his sales when he
receives Shs 40,000 as commission
Soln:

If required sales = y
8  y  40,000
 100

 y = 500,000

6. A salesman gets a commission of 12% on the first Shs 150,000 of his total sales
and 20% on the rest. Find his sales when he receives Shs 108,000 as commission

Soln:

If required sales = y

 12  150,000   20  (y  150,000)  108,000


  100  100

 y = 600,000

7. A sales agent earns a salary of Shs 200,000 per month and a commission of
15% for the sales in excess of Shs 100,000. In the first month, his total earning
amounted to Shs 320,000.
(a) Find his sales for that month
(b) If the total sales in the second month increased by 20%, find the commission he
received in that month.
(c) If the total sales in the third month decreased by 25%, find his income for that
month

Soln:

(i) If required sales = y

200,000  15  (y  100,000)  320,000

 100

16
  y = 900,000
120  900,000  1,080,000
(ii) Total sales = 100
15  (1,080,000  100,000)  147,000
Commission = 100

75  1,080,000 810,000
(iii) Total sales = 100

200,000  15  (810,000  100,000)  306,500

Earned Income = 100

EER:

1. A salesman earns a basic salary of Shs 120,000 per month and a commission of
8% of the month’s total sales. In a certain month, he sold goods worth Shs
1,350,000. Calculate his income for that month

2. A salesman gets a commission of 4% on the first Shs 800,000 of his total sales
and 5% on the rest. Find his:
(i) commission for sales worth Shs 1,500,000
(ii) sales when he receives Shs 172,000 as commission

3. A bookshop employs two salesmen Bob and Tom. Bob earns a basic salary of
Shs 18,500 per week and a commission of 25% on each book sold. Tom earns a
basic salary of Shs 24,000 per week and a commission of 5% for sales in excess of
1,800 books. In a certain year, each sold a total of 15,000 books at Shs 4,000
each.

(i) Find who earned more money and by how much (Assume 52 weeks in a year)

(ii) In another year, Bob earned a total of Shs 2,962,000. Find the number of
books he sold that year

4. A salesman gets commission as follows:

17
 10% on the first Shs 100,000
12% on the next Shs 400,000
15% on the remainder
Find his:
(i) commission for sales worth Shs 800,000
(ii) sales when he receives Shs 52,000 as commission
5. A hawker sells cups at Shs 500 each. He sold 50 cups in the first week. In the
second week he sold 20% more than in the first week. In the third week he sold
10% more than in the second week. Each week he receives a commission of 8% of
the price of the first 20 cups sold, and 12% for any cups sold in excess of 20.
(a) Express the number of cups sold in the third week as a percentage of the
number sold in the first week
(b) Calculate the commission he received in the third week
(c) If in the fourth week the hawker received Shs 2,000 as commission, calculate
the number of cups he sold in that week

CURRENCY EXCHANGE

Summary:

1. The price of one currency relative to another is called currency exchange rate

2. The rate at which the bank buys your foreign currency is called buying rate

3. The rate at which the bank sells you foreign currency is called selling rate

4. Currency conversion problems can be solved using a summary table and ratio
theorem

EXAMPLES:

1. A radio costs £30. Find its cost in dollars if £1 = $16.

Soln:

Pounds 1 30
Dollars 16 x
1  30
16 x

 x = $48

18
2. Find how many dollars are worth Ug Shs 21,000, if $1 = Ug Shs 3,500.

Soln:

Dollars 1 x
Ug Shs 3,50 21,00
0 0
1  x
3500 21,000

 x = $6

3. Find how many pounds are worth $600, if $1 = Ug Shs 1,900 and £1= Ug Shs
5,700.

Soln:

Dollars 1 600 Pound 1 y

s
Ug Shs 1,90 x Ug Shs 5,70 x
0 0
1 600
 x
1,900

 x = Ug Shs 1,140,000
1  y
Also 5700 1,140,000

 y = £200

4. Find how many dollars are worth K Shs 9,750, if 1K Shs = 24 Ug Shs and
$1= Ug Shs 1,950.

Soln:

19
 K Shs 1 9,75 Dollar 1 y
0 s
Ug Shs 24 x Ug Shs 1,95 x
0
1  9,750
24 x

 x = Ug Shs 234,000
1  y
Also 1,950 234,000

 y = $120

5. Bank of Uganda buys and sells foreign currencies as follows:

Exchange rate
Foreign currency Buying Selling
1 Euro (€) Shs 3,400 Shs 3,500
1 Pound sterling (£) Shs 4,000 Shs 4,200
A tourist arrived in Uganda with 1,300 Euros which he exchanged for Uganda
shillings. During his stay he spent Ug Shs 2,320,000 and converted the remainder
in to pound sterling before he left. Calculate the amount he received on his
departure

Soln:

The bank buys 1 Euro (€) at Shs 3,400

Euros 1 1,30
0
Ug Shs 3,40 x
0

20
 1  1,300
3,400 x

 x = Ug Shs 4,420,000

Remainder = 4,420,000  2,320,000 = 2,100,000

The bank sells 1 pound (£) at Shs 4,200

Pound 1 y
Ug Shs 4,20 2,100,00
0 0
1  y
4,200 2,100,000

 y = £500

EER:

1. Convert £10 to Euros, if £1 = € 112

2. A Smartphone costs 24,000 Indian rupees. Find its cost in pound sterling if
£1 = 96 rupees

3. A tourist exchanged $1200 for Uganda shillings at a rate of $1 = Ug Shs 3500.

Find the amount he received in Uganda currency

4. A radio costs Ug Shs 787,500. Find its cost in pounds sterling, if US $1 = Ug

Shs 2500 and £25 = US $ 35.

5. A tourist exchanged $900 for pound sterling at a rate of £1 = $15. Find the
amount he received in pound sterling, if the bank charged him 5% commission

21
6. A tourist exchanged $750 for Uganda shillings. He spent Ug Shs 1,260,000 and
converted the remainder in to pound sterling before he left. Find the amount he
received on his departure, if $1 = Ug Shs 3600 and £1 = Ug Shs 4,800.

7. Bank of Uganda buys and sells foreign currencies as follows:

Exchange rate
Foreign currency Buying Selling
1 US Dollar ($) Shs 2,900 Shs 3,000
1 Pound sterling (£) Shs 4,650 Shs 4,700
A tourist arrived in Uganda with $4,500 which he exchanged for Uganda
shillings. During his stay he spent Ug Shs 10,230,000 and converted the
remainder in to pound sterling before he left. Calculate the amount he received on
his departure

8. A tourist changed $900 into Euros when the exchange rate was €1 = $15. He
spent €450 and received $210 in exchange of the remainder. Find the exchange
rate of this second transaction

9. A tourist had £ 8,000 when he visited Uganda. He changed all of it to Uganda

shillings (Ug Shs) at a rate of Shs 3200 per £ 1 while in Uganda, he spent Ug Shs
7,200,000 and later exchanged the balance to pounds at a rate of Ug Shs 4000 per
£1. How much did he get.

SIMPLE INTEREST

Summary:

1. The amount borrowed or lent is called the principal

2. The reward to the lender is called interest

3. In solving simple interest problems, the following relations apply:

Principal  Rate  Time

(i) Simple interest = 100

(ii) Amount = principal + interest

22
EXAMPLES:

1. Find the simple interest on Shs 25,000 for 3 years at a rate of 8% per annum

Soln:

I  PRT  2,5000  8  3  6,000

100 100
2.Find the amount to which Shs 80,000 accumulates in 9 months at a simple
interest rate of 15% per annum

Soln:

If A = P + I,

A  80,000   80,000  15  9   89,000

  100 12 

3. Find the simple interest on Shs 100,000 at a rate of 6% per annum from
9th oct 2016 to 21st Dec 2016

Soln:

Hint: In calculating interest on days, do not count the day when the money is
lent out, but count the day when it is returned

No of days = 22 (in Oct) + 30 (in Nov) + 21 (in Dec) = 73

I  PRT  100,000  6  73  1,200

100 100 365
4. Find how long will it take for a sum of Shs 80,000 to yield an interest of Shs
12,000 at a rate of 5% per annum simple interest

Soln:

I  PRT ,
If 100

5
80,000 × × T = 12,000
 100

23
  T = 3 years
5. Find the principal that yields a simple interest of Shs 27,000 in 9 years at a rate
of 6% per annum

Soln:

I  PRT ,
If 100

P  6  9  27,000
 100

 P = Shs 50,000

6. Find the principal that will amount to Shs 147,200 in 6 years at a simple
interest rate of 14% per annum

Soln:

If A = P + I,

P   P  14  6   147,200
  100 

 P = Shs 80,000
7. A sum of Shs 12,500 amounts to Shs 15,500 in 4 years at the rate of simple
interest. Find the rate of interest per annum

Soln:

If A = P + I,

12,500   12,500 R  4   15,500

  100 

 R = 6%

8. A man borrowed Shs 156 million from a bank at a simple interest rate of 15%
per annum. He has to repay the loan within 2 years in equal weekly instalments.

24
Calculate the:
(i) interest he paid to the bank
(ii) total amount to be paid
(iii) amount he paid per week

Soln:

I  PRT  15  6  15  2  4  68 million
(i) 100 100

(ii) A = P + I = 156 + 468 = 2028 million

Amount  20  28  0  195 million
(iii) Weekly payment = No of weeks in 2 years 2  52

EER:

81%
1. Find the simple interest on Shs 96,000 for 10 months at a rate of 3 per
annum

2. A sum of Shs 25,000 is invested for 3 years at a simple interest rate of 6% per
annum. Find the interest and amount received in that period

3.Find the amount to which Shs 60,000 accumulates in 4 years at a simple interest
rate of 15% per annum

4. Tom deposited Shs 8,000 which amounted to Shs 9,200 after 3 years at simple
interest. Find the rate of interest per annum

5. Tom deposited Shs 40,000 in a bank which offers a simple interest rate of 5%
per annum. Find how much interest he earned after 8 years

6. A sum of money lent out at simple interest amounts to Shs 84,000 in 10 years at
a rate of 3% per annum. Find the sum lent out

7. A bank lent out Shs 500,000 to Tom for 2 years and Shs 300,000 to Bob for 4
years at the same rate of simple interest. If the total interest from both men
amounted to Shs 220,000, find the rate of interest per annum

25
8. Tom and Bob borrowed Shs 30,000 and Shs 35,000 respectively at the same
rate of simple interest for 3 years. If Bob paid Shs 1,500 more interest than Tom,
find the rate of interest per annum

9. Tom wants to buy a car which is priced at Shs 6 million. He deposits Shs 2×4
million and 15 months later his required to pay the rest on which his charged a
simple interest rate of 20% per annum. Find the total amount of money Tom will
have to pay for the car

10. A sum of money lent out at simple interest amounts to Shs 62,000 after 4 years
and to Shs 77,000 after 9 years. Find the sum lent out and the rate of interest per
annum

COMPOUND INTEREST

Summary:

1. Compound interest is the interest earned on both the principal and on the
interest previously earned

2. In solving compound interest problems, the following relations apply:

n
A  P  1  r 
(i)  100 

(ii) Compound Interest = Amount  principal

(iii) The principal for the next period = Interest earned + principal

26
EXAMPLES:

1. Find the amount and interest received on Shs 600,000 invested for 2 years at a
compound interest rate of 15% per annum.

Soln:
n
A  P  1  r 
If  100 

2
A  600,000  1  15   793,500
  100 

If C I = A  P

 C I = 793,500  600,000 = 193,500

METHOD 2: (STEP BY STEP METHOD)

 115  600,000 690,0000

First year amount A 100

 115  690,000 793,5000

Second year Amount A 100

If C I = A  P

 C I = 793,500  600,000 = 193,500

METHOD 3: (STEP BY STEP METHOD)

I  PRT  600,000  15  1  90,0000

First year interest 100 100

First year amount A = 600,000 + 90,000 = 690,000

I  690,000  15  1  103,500
Second year interest 100

Second year Amount A = 690,000 + 103,500 = 793,500

If C I = A  P

27
  C I = 793,500  600,000 = 193,500

2. Tom deposited Shs 750,000 in a bank which offers a compound interest rate of
20% per annum. Find how much interest he earned after 3 years

Soln:

If C I = A  P

3
C  I  750,000  1  20   750,000  546,000
 100
 

3. Find the difference between the simple interest and compound interest on Shs
50,000 for 2 years at a rate of 5% per annum

Soln:

I  PRT  50,000  5  2  5,000

100 100

If C I = A  P

2
C  I  50,000  1  5   50,000  5,125
  100 

Required difference = 5,125 50,000 = 125

4. A sum of money amounts to Shs 1,296,000 in 3 years at a compound interest

rate of 20% per annum. Find the sum invested

Soln:
n
A  P  1  r 
If  100 

3
P  1  20   1,296,000
  100 

 P = 750,000

28
5. A sum of money lent out at compound interest yielded an interest of Shs 36,400
in 3 years at a rate of 20% per annum. Find the sum lent out

Soln:

If C I = A  P

3
P  1  20   P  36,400
  100 

 P = 50,000

6. Tom deposited Shs 750,000 which amounted to Shs 1,296,000 after 3 years at
compound interest. Find the rate of interest per annum

Soln:
n
A  P  1  r 
If  100 

3
750,000  1  r   1,296,000
  100 

1  r  3 1,296,000
 100 750,000

 r = 20%
7. A man invests Shs 200,000 at the beginning of each year in a bank which offers
a compound interest rate of 5% per annum. Calculate the amount of money the
man had in the bank immediately after payment of the third investment.

STEP BY STEP METHOD

 105  200,000  210,0000

First year amount A 100

29
Second year principal = 210,000 + 200,000 = 410,000

 105  410,000 430,500

Second year Amount A 100

Third year principal = 430,500 + 200,000 = 630,500

 Required amount = 630,500

8. A man borrows Shs 250,000 at 10% per annum compound interest. He pays
back Shs 100,000 at the end of each year. Calculate his debt at the beginning of
the third year.

STEP BY STEP METHOD

 110  250,000 275,0000

First year amount A 100

Second year principal = 275,000  250,000 = 175,000

 110  175,000 192,500

Second year Amount A 100

Third year principal = 192,500  100,000 = 92,500

 Remaining debt = 92,500

8. A sum of money lent out at compound interest amounts to Shs 60,000 after one
year and to Shs 72,000 after 2 years. Find the sum lent out and the rate of interest
per annum

9. Tom deposited Shs 800,000 in a bank which offers a compound interest rate of
85% per annum. Find how long will it take for his money to accumulate to Shs
941,780

30
 PERIODIC COMPOUNDING

Summary:

1. An investment may be compounded more than once a year. It can be

compounded daily, weekly, monthly, quarterly and semiannually.

A  P  1  r  nk ,
2. If interest is compounded more than once a year, then:  100k 
where n = time frame in years, k = number of compoundings within a year,
r
k
nk = number of compoundings over n year, = interest rate for one period

3. (i) Interest compounded quarterly means that its compounded four times a year.
Thus k = 4
(ii) Interest compounded semiannually means that its compounded two times a
year. Thus k = 2
(iii) Interest compounded monthly means that its compounded 12 times a year.
Thus k = 12
(iv) Interest compounded weekly means that its compounded 52 times a year. Thus
k = 52
(v) Interest compounded daily means that its compounded 365 times a year. Thus
k = 365
r
k
4. The term means that the interest rate per year is converted into interest rate
for one period

EXAMPLES:

11
1. Tom invested Shs 60,000 for 2 years at a rate of 12% per annum
compounded quarterly. Find the amount received in that period

Soln:

31
 A  P  1  r  nk
If  100k 

 
1  5(4)
A  60,000  1  12   71,643
  100(4)

2. Find the interest received on Shs 800,000 invested at a rate of 20% per annum,
21
compounded semiannually for 2 years

Soln:

A  P  1  r  nk
If C I = A  P, where  100k 


2  5(2)
C  I  800,000  1  20   800,000  488,408
  100(2)

3. Find the amount received on Shs 400,000 invested at a rate of 15% per annum,
compounded monthly for 2 years

Soln:

A  P  1  r  nk
If  100k 

 
2(12)
A  400,000  1  15   538,940 42
  100(12)

EER:

1. Find the amount and interest received on Shs 750,000 invested for 3 years at a
compound interest rate of 20% per annum.

32
 11
2. Tom invested Shs 60,000 for 2 years at a rate of 12% per annum
compounded quarterly. Find the interest received in that period
3. Find the amount received on Shs 800,000 invested at a rate of 20% per annum,
21
compounded semiannually for 2 years

4. Tom and Bob were each given Uganda shilling 980,000 at the beginning of
2015. Tom exchanged his money to US dollars and then banked it on his foreign
currency account at a compound interest rate of 2% per annum, while Bob banked
his money without exchanging it, at a compound interest rate of 12% per annum.
The exchange rate in 2015 and 2016 were Ug Shs 1,250 and Ug Shs 1,500 to a
dollar respectively. If Bob withdrew Shs 120,000 at the end of 2016,
(i) Calculate the amount of money (in UG Shs) each man had in the bank at the
end of 2016
(ii) who had more money and by how much?

5. Jane and Joan invested Shs 600,000 each in a savings society for 2 years. Jane
opted for simple interest while Joan opted for compound interest. Both interest
rates were at 12% per annum.
(i) Find the interest earned by each of them
(ii) who had more money and by how much?

6. Tom wants to buy a house which is priced at Shs 56,000,000. A deposit of 25%
of the value of the house is required. A bank will lend him the rest of the money at
a compound interest of 15% per annum and payable after two years.
Calculate the:
(i) deposit Tom must make
(ii) amount of money Tom will have to pay the bank after two years
(iii) total money which Tom will spend to buy the house

7. At the beginning of the year 2015, Bob deposited Shs 1,900,000 in a bank which
offers a compound interest rate of 275% per four months. Find how much interest
he earned at the end of the year

33
8. Tom borrows Shs 750,000 at a simple interest rate of 20% per annum and then
immediately lends it to Bob at the same rate but at a compound interest. Find how
much will Tom gain by this transaction after 3 years

9. A man borrowed Shs 1485 million from a bank at a compound interest rate of
12% per annum. He has to repay the loan within 2 years in 6 equal instalments.
Calculate the:
(i) total amount he paid to the bank
(ii) interest he paid to the bank
(iii) amount he paid per instalment

10. A man borrowed Shs 396 million from a bank at a compound interest rate of
105% per annum. He has to repay the loan within 2 years in 8 equal instalments.
Calculate the:
(i) total amount he paid to the bank
(ii) interest he paid to the bank
(iii) amount he paid per instalment

11. At the beginning of each year starting in 2011, a man invests Shs 800,000 in a
bank which offers a compound interest rate of 5% per annum. Calculate the
amount of money the man had in the bank at the end of 2013

APPRECIATION AND DEPRECIATION

Summary:

1. (i) The gradual gain in the value of an asset is called appreciation

n
A  P  1  r 
(ii) If an asset appreciates in value, then  100 

34
2. (i) The gradual loss in the value of an asset is called depreciation
n
A  P  1  r 
(i) If an asset depreciates in value, then  100 

EXAMPLES:

1. A plot of land valued Shs 400,000 appreciates in value at 15% per annum. Find
its value after 2 years

Soln:
n
A  P  1  r 
If  100 

2
A  400,000  1  15   529,000
  100 

2. A house valued Shs 600,000 appreciates in value at 10% per annum. Find its
value after 3 years

Soln:
n
A  P  1  r 
If  100 

3
A  600,000  1  10   798,600
  100 

3. A bicycle valued Shs 250,000 depreciates in value at 20% per annum. Find its
value after 3 years

Soln:
n
A  P  1  r 
If  100 

3
A  250,000  1  20   128,000
  100 

35
4. A laptop valued Shs 500,000 depreciates in value at 10% per annum. Find its
value after 3 years
n
A  P  1  r 
If  100 

3
A  500,000  1  10   256,000
  100 

5. A car was bought at Shs 5 million. In the first year, its value depreciated by
20%, in the second year by 15% and in the third year by 10%. Find its value after
3 years

STEP BY STEP METHOD

 80  5  4 million
First year amount A 100

 85  4  3  4 million
Second year Amount A 100

 90  3  4  3  06 million
Third year Amount A 100

 Required amount = 306 million

EER:

1. A house was bought at Shs 150,000. In the first year, its value appreciated by
25%, in the second year by 10% but dropped by 20% in the third year. Find its
value after 3 years

2. A new factory machine depreciates in value at 25% per annum. If its value after
3 years is Shs 135,000, find its value when new

TRADE PARTNERSHIP

Summary:

36
1. Partnership bussiness is a bussiness owned by two or more people
2. Partners must negotiate and agree upon a fair profitsharing ratio

EXAMPLES:

1. Tom, Bob and Ben form a trade partnership. Tom contributes Shs 750,000, Bob
Shs 500,000 and Ben Shs 900,000. 20% of the annual gross profits are reinvested
and a monthly taxation of Shs 10,000 is to be paid by each shareholder. The net
profit is to be shared in the ratio of their capital contributions. If at the end of the
year their bussiness made a gross profit of Shs 3,160,000 , find how much did
each member get as his net profit

Soln:

Amount reinvested =

Annual tax = 3  10,000  12 = 360,000

Net profit = 3,160,000  (632,000 + 360,000) = 2,168.000

Profitsharing ratio = 750,000 : 500,000 : 900,000 = 15 : 10 : 18

Tom’s share =

Bob’s share =

Ben’s share =

2. Tom, Bob and Ben decided to buy a bus. The bus owner offered the bus at
Shs 280 million but agreed to be paid 60% of the value as initial deposit in the

ratio 3:2:5 respectively and the remaining amount to be paid after 1 year. The

total balance was to be paid from the profits of the bus in the same ratio as the

deposits. They agreed to share the net profits in the ratio of their deposits. If at

the end of the year the bus realized Shs 208 million, find:

(i) how much deposit did each contribute

(ii) how much of the balance did Ben contribute.

37
 (iii) how much money was left with Tom after paying the balance

Soln:

(i) Amount deposited = 06  280 = 168 million

Total ratio = 3 +2 + 5 = 10

Tom’s contribution = 03  168 = 504 million

Bob’s contribution = 02  168 = 336 million

Ben’s contribution = 05  168 = 84 million

(ii) Total balance = 280  168 = 112 million

Ben’s balance contribution = 05  112 = 56 million

(iii) Net profit = 208  112 = 96 million

Tom’s balance contribution = 03  96 = 288 million

EER:

1. Tom and Bob decided to buy a plot. The plot owner offered the plot at
Shs 20 million but agreed to be paid 75% of the value as initial deposit in the

ratio 5:3 respectively and the remaining amount to be paid after 2 years

including an additional 5% of the initial value for processing the plot

documents. The total balance was to be paid in the same ratio as the deposit.

Find how much of the balance did Bob contribute.

2. Tom and Bob have shares in a company. Tom contributed Shs 400 million and
Bob Shs 600 million as share capital. The company expenses that year were
electricity Shs 12 million, salaries Shs 55 million and transport Shs 13 million.

38
The net profit is to be shared in the ratio of their share capital. If at the end of the
year their company made a gross profit of Shs 200 million

(a) find the:

(i) total expenditure for the company

(ii) percentage of the company’s expenses to the net profit

(b) Find how much money each share holder got that year if 10% of this was paid
as income tax

3. Tom and Bob contributed Shs 112,000 and Shs 128,000 respectively to start a
partnership business. They agreed to share their profits as follows.

35% to be shared equally

25% to be shared in the ratio of their respective contributions and 40% to

be retained for the running of the business. If their profit was Shs 864,000,
calculate the:

(i) amount Bob received

(ii) amount retained for the business

4. Five members of a self supporting enterprise Tom, Bob, Ben, Sam and Tim were
given a certain amount of money to share amongst themselves. Tom got 3/8 of
the total amount while Bob got 2/5 of the remainder. The remaining amount was
shared equally among Ben, Sam and Tim each of which received Shs 600,000
(i) How much was shared among the five business men?
(ii) How much did Bob get?
(iii) Tom, Bob and Tim invested their money and earned a profit of Shs 1,200,000.
A third of the profit was reinvested and the rest was shared in the ratio of their
investments. Find how much each got.

TAXATION

39
(b) A man earns a gross monthly salary of sh 630,000. His allowance

in a given month amounted to sh 128,000 and tax was levied on

taxable income as follows:

5% for the first sh 200,000

35% for the rest

Find the:

(i) taxable income

(ii) income tax paid by the man

40